Israel had no comment on the incident, the latest in a string of attacks to hit a U.N. installation.
Israel was pressing ahead with its offensive hours before a vote by its leaders late Saturday on whether to accept an Egyptian-brokered truce.
The vote followed Friday's signing of a "memorandum of understanding" in Washington between Secretary of State Condoleezza Rice and Israeli Foreign Minister Tzipi Livni that calls for expanded intelligence cooperation to prevent Hamas from rearming. Livni called the deal, reached on the final working day of the Bush administration, "a vital complement for a cessation of hostility."
Israel's 12-member Security Cabinet was expected to approve the Egyptian proposal, under which fighting would stop immediately for 10 days. Israeli forces would remain in Gaza and the territory's border crossings with Israel and Egypt would remain closed until security arrangements are made to prevent Hamas arms smuggling.
Under the deal, Egypt would shut down weapons smuggling routes with international help and discussions on opening Gaza's blockaded border crossings
- Hamas' key demand - would take place at a later date.
It remained unclear whether Hamas supports the proposal, sending mixed signals about whether it would accept the cease-fire proposal. In Turkey, a spokesman for the movement, Sami Abu Zuhri, said Saturday that militants would keep fighting.
Hamas "will not bow to invading forces, will not raise the white flag," he said.
But after weeks of heavy losses, leaders inside Gaza have signaled they are ready for a deal. A Hamas delegation was headed to Cairo on Saturday for more negotiations.
"Our movement is a main player and it cannot be ignored," said Ghazi Hamad, a Gaza-based Hamas official.
Hamas, which overtook the Gaza Strip in a violent coup in June 2007, has demanded an immediate Israeli withdrawal from Gaza and the opening of blockaded border crossings.
Israel launched the offensive on Dec. 27 to try to halt near-daily Hamas rocket attacks against southern Israel. Palestinian medics say the fighting has killed at least 1,140 Palestinians
- roughly half of them civilians - and Israel's bombing campaign caused massive destruction in the Gaza Strip. Thirteen Israelis have been killed, four by rocket fire and nine in ground battles in Gaza, according to the government.
Israel Radio reported that a truce summit could be held in Cairo as early as Sunday with U.N. Secretary-General Ban Ki-moon and Israeli leaders in attendance.
In the meantime, there was no slowdown in the offensive. A total of 11 Palestinians were killed in battles throughout Gaza on Saturday, Palestinian medics said.
Israeli warplanes dropped bombs throughout the night on suspected smuggling tunnels in the southern border town of Rafah. The bombs could be heard whistling through the air, shook the ground upon impact and left a dusty haze in the air.
In the northern town of Beit Lahiya, an Israeli shell struck a U.N. school where 1,600 people had sought shelter to flee the fighting, said Chris Gunness, a spokesman for the U.N. agency for Palestinian refugees.
He said several shells struck the school compound, including a direct hit on the top floor of the building. The shell killed two boys, and turned a room on the building's into a blackened mess of charred concrete and twisted metal bed frames. Near Gaza City, Palestinian officials said three more civilians were killed by a naval shell, and a militant was killed in an airstrike.
Gunness condemned the school attack, saying the U.N. has given Israel the coordinates of all its operations in Gaza to avoid such violence. "There have to be investigations to see if war crimes have been committed," he said.
